Every so often, I receive flyers dropped off on my doorstep asking me to sell my home to someone who is “interested in buying a property in my neighborhood.” I’ve been receiving them from the same person for over 5 years, yet he hasn’t moved into the neighborhood. I wonder why?

In this particular flyer, the buyer’s terms were clearly spelled out:

I will buy the property in “as is: condition

I will pay a fair price

I will pay cash

You can remain in the home for a while after we close

I am not an agent

I will pay all closing costs

I will make this transaction easy and smooth

The second paragraph reads…

“If you are thinking of selling, please let me know and I will be happy to meet with you and make a fair offer. I am not a real estate agent. I am interested in property in this neighborhood. I look forward to hearing from you…. “

The bottom had a first name, phone and e-mail address.

From a quick glance it appears as if this is just a guy who wants to move into my Los Altos neighborhood. How flattering, he likes my neighborhood and wants to be my neighbor. I did a little research and this is what I found out.

The buyer is a real estate investor. He wants to buy a house only if he can make money on it. I’m not going to see him doing yard work out front. His kids aren’t going to play with mine. He won’t be at the neighborhood block party!

His flyer makes it look as if he is really interested in buying in the neighborhood for personal use, but the reality is he buys and sells homes off market for a profit. It is a pretty sophisticated system whose success is based in part on the lack of knowledge or sophistication of the homeowner.

Here is how it works

After targeting a neighborhood with flyers (apparently his neighborhood is the entire peninsula), he receives a call from the unsuspecting home seller. He offers a substantially below market offer but makes it sound better by making the process easy on the seller (buying “as is,” pay cash (really does he?), pay closing costs, allow the homeowner to stay in-house etc.).

The contract puts him and/or an assignee as the buyer (this allows him to assign the buyer’s contractual rights to a third-party). Either before or while in contract, he secures an investor/buyer who will take over the purchase, he removes himself from the contract and a new investor/buyer becomes the buyer. He walks away with a large fee for setting up the deal (does he need a real estate license for this?). The new buyer gets a home below market and the seller is left wondering what happened.

The investor doesn’t want a real estate professional, real estate attorney, or anyone else who might scrutinize the deal involved. The more eyes that look at the deal the less likely the deal will go through.

Why is this a bad deal for the home seller?

The investor will only purchase properties that are sold substantially below market rate – seller is leaving a large sum of money on the table.

The investor will only purchase properties “off-market” because he knows a house exposed to the market will cost him substantially more money, thereby reducing his profit – again, seller leaves money on the table.

By assigning the contract to another, the seller doesn’t know who the buyer really is or what the buyer’s qualifications are – there is a much higher probability that the deal won’t go through.

The investor is not a licensed real estate sales person yet acts like one (are these activities illegal?) - could potentially involve the seller in future legal problems.

The investor can tie up a property for months (until he/she finds a buyer) – thereby preventing the seller from selling the home to anyone else.

Note: I don’t believe the investor’s activities are illegal. However, his flyers are misleading and his success is directly related to the seller’s lack of market knowledge.

If you receive one of these flyers and are curious, make sure you fully understand the deal and the person behind the deal before committing to anything. You must know that if you choose to sell your home off-market or as a pocket listing, it is highly likely that you will net less money than if you sold it with full market exposure. If approached, contact your local Realtor or a real estate attorney who specializes in these types of transactions to see if it is in your best interests to sell your home in this manner.

If you have questions about what is in your best interests when selling your home in today’s real estate market, please call me directly at 650 917-4250.